I had been looking on the MLS and elsewhere for a good deal. 2 weeks ago I made offers on several houses. I had already lined up a private lender and contractors for the repairs. The first house that I bought went like this.
Purchase price @ 30,000
repair costs @ 5,000
total-----------------35,000
exit strategy ----rent to own @ 4000 down at 700/mo
after repair value 80,000
The 2nd house went like this
purchase price@ 25,000
repair costs @ 3,000
total----------------28,000
exit strategy-----rent to own @ 2000 down at 500/mo
after repair value 50,000
The best part of these deals was with the private lender in that i have no payments. We agreed that all of the interest and principle is due at the time of sale when the tenant/buyer cashes me out.
I can also make a few bucks if I make the repairs myself. I get to keep the cash flow on both properties and get a huge payday at the end.
These deals do not just fall into my lap they take hard work but I think they are worth it. What do you think?
redhawk
1st property =sale price 80,000
loan 35000
gross 45000
less 8 % interest 2800
net to me 42,200
plus 700/mo x12= 8400
less closing costs== 400
grand total------------------50,200
2nd property= sale price 50,000
loan 28,000
gross 22,000
less 8 %interest 2240
net to me 19,760
plus 500/mo x 12 6000
less closing costs 400
grand total-------------------25,360
approx 75,560 between both houses assuming I get it rented for a full year and keep within budget on repairs. Remember there is 8000 in repair money that I borrowed. I may be able to save some of that as the first property only needs cleaning and paint. The second property needs a well pump.
Redhawk
no wonder you can’t make any money with rehabs with all of the added costs to buy and sell???
No marketing costs I use Craigs List for tenant/buyers.
Closing costs are not that high, I have been to a few of them.
I don’t need a Realtor to sell them as I have a tenant/buyer, in about a week from ownership usually
I rarely contribute to buyers closing costs=0
No Realtor commissions and no 6 mo marketing to sell that would only be on straight selling the old way with a Realtor.
All misc is taken care of in the fix up cost estimate=0
redhawk
You have to look at all factors in the deal, including the fact that you may not be able to sell for what you expect.
What if a perfectly qualified person comes along that can only afford to buy the 80k at 70k, are you going to say hell no I wont sell to them? no of course not.
Closing costs are what they are. Depends on your market . In the market you are playing in (blue collar), most of the buyers either have enough for downpayment and some closing costs, but not all. I always assume that I have to help so that I can close the deal and get rid of the property. Again, if a buyer comes along that qualifies for a bank loan needs assistance, there is no way I’m going to say No to helping them if it closes the deal.
As for dealing with realtors, I agree you can use a flat fee listing service, however hat only applies to your side of the equation (from 3% to a few hundred bucks), not the buyers. Their realtor will more than likely demand the standard 3% or poison the deal in the buyers mind.
Marketing costs, are ads, signs, flyers, postcards, etc which in total run about $500 per month. Craigslist is nice, but it is not the end all to getting a home sold; it’s one of many tools. Your goal is to cast as wide a net as possible, consistently letting everybody know that you have something great for sale.
To cover the additional costs that I brought up, all once has to do is negoitiate a lower purchase price. For the first case you’re ok, for case 2, I would pass or get it for about 5k.
I have control of price/rent/terms upfront or no deal.
3 work with mortgage broker to qualify in advance.
4 No Realtor involved at all closing at title office.
Very little marketing involved, website, slide show, Craig’s list ad and I will get 10 to 15 call in one week.
Yes deal #2 is not as good as #1 but I will make money and i will do it again as soon as I digest this one
Redhawk
Most rent to own people don’t have 4k or 5k to put down.
If they did for a property that cheap they could most likely
get financed from a mortgage broker or lender.
Most rent to own people can’t get financing in two or even three
years. For the same reason they could not get it today.
Bad credit and/or low income take years to bring the credit
score up or removed.
Most rent to own buyers are really just renters.
Your investor is only making a couple thousand on 35 plus thousand
loans. that will take years to maybe get or not. Hmmm.
Most of the rent to own people do have the 4kto5k to put down because they have been pre-qualified by a mortgage broker. Mortgage brokers are approaching me to help them sell there leads.
The reason that tenant /buyers cannot get financing is they do not have 20% down and high credit score and closing costs and fear of the market to continue to go down. Because that’s what they believe.
The rent to own people that I work with can qualify for mortgage within six months to one year, if not no deal.
Bad credit is why they need help of credit repair professionals if you do not use them this will not work. As for low income it is a no deal from the start as I would not RTO to them if they cannot afford the payments. I set the rent as close to the house payment that they will pay when they mortgage out so no suprises.
I agree that most of the calls that I get are from renters that want the RTO deal because they think that they are getting something for nothing. It is my job to screen these people out. I need 12 tenant/buyers a year to purchase and sell homes on a one a month basis.
As for my investor he is making 8% on his money that he had in his checking account that was making no interest.He has over 100,000 invested with me based on trust. We have a good setup that works for him and for me. This did not happen overnight, it took me years to establish my credibility with him. Also if we sell within 6 months he still gets 8 %. If anything goes wrong he gets the property.
As for to good to be true maybe for you but not for me. Think outside of what you have been told. I have heard all of the negative sayings of why you can’t make money in real estate, but they are just not true.
Redhawk
I think you are incorrect about buyers not having money to put down. There are plenty of buyers out there that have plenty of cash but cannot verify income. On one hand getting rid of stated income loans is a good thing because they became a tool for unscrupulous realtors and mortgage brokers to get people houses they could not afford. On the other hand there is a large segment of self-employed borrowers that make a lot of money but write it all off on their taxes.
The only issue I can see with Redhawk’s business model is that since he is paying 8% on his money it will be difficult to make a monthly spread and he won’t see a dime of his profit until he sells the property. sweat equity us nice, but if he goes through three or four RTO buyers it could be 2011 before he makes a dime of all of his hard work. And if we see a double dip in property values he could go underwater and really be screwed.
I am with Hassan. Get in, get out, make your money and go.
8% 0f 35000 is 2800 or 233.33/mo ans the rent is 700 that is not a bad spread.
Not seeing a dime before it sells. I will make a few dollars on the fix up and 4000.00 down payment and 466.66 on the spread of the rent.
If we see a double dip in housing prices then we are all in trouble because the country will be bankrupt. I’ll take my chances with that.
Redhawk